Most regions of the world are now facing overcapacity in tissue manufacturing, explains Esko Uutela of RISI, a top information provider for the global forest products industry.

"There have been a lot of new mill construction projects in China, Indonesia, Latin America and so on. Many of these mills are export-oriented."

Conditions are a bit better in Europe, although the market is nevertheless becoming very crowded.

"We are still expecting 3.7 per cent growth in global demand for tissue, which is not much less than the previous forecast of4 per cent. This reduction is due to the slowdown in China, and to the fact that European demand is not really growing."

Political problems could now bring a fall in European demand. Uutela points out that the Russian tissue market has been growing by almost 10 per cent annually over the last ten years, but will be hurt by EU sanctions and Russian counter-sanctions.

"Although the Russian economy is unlikely to grow at all this year or next, this won't affect international fibre manufacturers directly, because Russia has domestic pulp manufacturing capacity of its own."

European tissue demand has been picking up recently. EU economies have been in sustained slow recovery since 2009, and further improvement had been expected this year.

"But now it seems that economic growth will be smaller in 2014, especially in countries that have a lot of trade with Russia. Some economists are even warning that Europe is approaching recession again."

"This fear will abate if the situation with Russia normalises and sanctions are lifted, although there are additional uncertainty factors in the Middle East, particularly in Syria and Iraq."

Better longer-term news

The longer-term news for pulp producers like Metsä Fibre is nevertheless better.

"Recycled paper is becoming scarce, and tissue mills using recovered fibre are paying higher prices for it. Tissue needs wood-free paper, but with less and less of this available the price of recovered fibre will continue to rise.

"With some coated grades providing a yield of only about 60 per cent, it is gradually becoming cheaper to use virgin fibre."

This view is echoed by Oliver Lansdell of forest product consultants Hawkins Wright. "With the falling use of graphic papers, there is less available for recycling," he points out.

"This means higher logistics costs for obtaining the available stock and more variation in the quality of recovered fibre. Some sourcing managers are now questioning whether it might be economically and ecologically preferable to use certified virgin fibre instead."

"Waste paper arriving at a mill contains all manner of toxins, and refining it is an energy-intensive process that can use a lot of chemicals. Some plants are still using very old machines and de-inking lines, and the quality of the recovered product is unreliable. Virgin fibre is increasingly perceived as a safer alternative."

Two segments

Paper industry specialist Lansdell notes that the tissue market divides into two segments. "Toilet paper, facial tissues and other products for home use have always had a higher virgin fibre content, but quality has not been so important in the tissue used by industry."

Changing costs could now affect the whole market. "If the cost advantage of using recovered fibre continues to erode, then even some non-home products may move towards virgin fibre."

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